In 4Q24, Fuyao’s total revenue rose by 17.2% YoY to RMB10.9bn, slightly beating on stronger domestic auto glass sales despite growth slowdown in overseas revenue. Attributable net profit grew 34.3% YoY to RMB2.0bn, slightly missed expectation on lower FX gains and margin erosion related to overseas plants. In contrast to robust domestic business, both revenue and profitability of overseas bases fell short of our expectations in 4Q24. The US hubs saw a slight YoY/QoQ decline in quarter revenue with operating margin slipping 2.4ppts QoQ to 9.2% amid customer demand weakness and cost pressures related to phase- two plant start-up and extra labour inflation, while SAM continued its flagging demand with widening loss of EUR22m in 4Q24. Looking into 2025, we expect solid growth for domestic auto glass business aided by continuous product upgrades alongside the accelerating smart EV migration and favourable cost environment. Yet overseas business may face growth slowdown with temporary margin headwind related to new capacity release. Hence, we leave our net profit forecasts for 2025-26 intact at RMB7.8bn/8.7bn, respectively. Maintain BUY with TP unchanged at HK$65, based on 20x 2025E P/E.

Key Factors for Rating

4Q24 revenue slightly beat on stronger domestic auto glass sales despite overseas demand slowdown. In 4Q24, Fuyao’s total revenue rose by 17.2% YoY to RMB10.9bn, slightly beating our prior anticipation on stronger robust domestic auto glass sales. By region, we estimate domestic auto glass sales may quicken revenue momentum with YoY growth of over 20% in 4Q24, significantly outpacing the domestic PV output YoY growth of 11.0%. For overseas auto glass sales, revenue scale stagnated at c. RMB 3.9-4.0bn over the past three quarters with a slowdown in YoY growth, primarily due to the macro demand weakness in overseas auto market as well as higher comparative basis caused by the massive restocking for ARG market in 2H23.

4Q24 gross margin disturbed by the change of accounting treatment for product packaging cost. In 4Q24, the reported gross margin dropped to 32.1%, essentially attributable to the change of accounting treatment for product packaging cost (shifted from selling expense to COGS) for the full year of 2024, which may negatively impact 4Q24 gross margin by 5.1ppts. If removing the non-recurring factors in 3Q/4Q GPM structure (incl. 1.8ppts margin mark-up from SAM’s customer recovery in 3Q and 5.1ppts margin impact from the recognition of product packaging cost in 4Q), 4Q24 adj. gross margin roughly flattened QoQ at c.37.2%, slightly missing expectations. Given the increasing ultilisation rate in domestic markets and decreasing raw material costs (sodium carbonate) and freights, we reckon 4Q24 gross margin was mainly dragged by weakened profitability in overseas hubs (both US bases and SAM).

Profitability of overseas manufacturing bases missed expectations in 4Q24 with headwind likely to persist in 1H25. For US base, amid industry-wide auto demand weakness and unfavourable macro dynamics, revenue slightly declined YoY and QoQ to US$214m in 4Q24. The operating margin slipped 2.4ppts QoQ to 9.2%, missing our prior anticipation, primarily due to: i) loftier frond-loaded costs related to the new capacity release in US second-phase facility (mainly new staff hiring and training); ii) labour cost inflation due to the conversion of previous contractors into perm employees to counteract possible allegations from the US government after a high-profile US investigation at Ohio factory in July. For 2025, we anticipate the capacity addition of second-phase plant to give a steady lift to US facility’s revenue expansion, whereas the profitability might face headwind as early production ramp up counts. We expect second-phase plant may contribute around 500k sets for 2025, which may still stand below breakeven point of 750-800k sets.

For SAM, if excluding the one-off revenue contribution from customer recovery claims in 3Q, 4Q24 revenue stayed on par with that in 3Q24 at EUR30m due to flagging demand from major customers. 4Q24 operating loss sharply expanded to EUR22m, which contains the recognition of impairment loss by EUR8.5m.

Going forward, the mgmt. expected that the demand uncertainties for SAM may escalate given the unfavourable macro dynamics and sluggish electric penetration in European market, which will continuously weigh on SAM’s fundamental turnaround.

Valuation

Generally speaking, we expect solid growth for domestic auto glass business for 2025, supported by improving product mix alongside increasing smart EV penetration and favourable cost environment, but overseas revenue growth may face slowdown with profitability headwind. Thus, currently we leave our revenue forecasts for 2025-26 largely intact at RMB45.1bn/51.8bn. Also, we maintained net profit forecasts roughly unchanged at RMB7.8bn/8.7bn, respectively. n While we deem the company’s long-term growth story stays solid and promising aided by continuous product upgrades amid electric migration momentum as well as enhanced leadership in global auto glass marketplace, we expect overseas business may face slowdown given the overall macro demand uncertainty with margin headwind related to new capacities likely to persist in 1H25. We maintain our TP of HK$65.00, equivalent to 20x 2025E P/E.